FINANCIAL INSTRUMENTS AND RISK MANAGEMENT |
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| Disclosure of detailed information about financial instruments [abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FINANCIAL INSTRUMENTS AND RISK MANAGEMENT | NOTE 37 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT 37.1- Classification of financial instruments by category The carrying amounts of the Company’s financial assets and financial liabilities represent a reasonable approximation of their fair values. The Company uses the following classification to categorize its financial instruments and their respective hierarchy levels:
The Company’s financial assets and financial liabilities measured at fair value are classified and disclosed according to the following hierarchy levels: •Level 1 – quoted (unadjusted) prices in active, liquid, and observable markets for identical assets or liabilities that are accessible at the measurement date; and •Level 2 – quoted prices (adjusted or unadjusted) for similar assets or liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, other than quoted prices included within Level 1. 37.2 - Capital risk management The Company monitors its capital based on a financial leverage ratio. This ratio corresponds to net debt divided by total capital. Financial leverage, in turn, comprises the total amount of short‑ and long‑term loans, borrowings, and debentures (see Note 24), less cash and cash equivalents and securities and marketable securities (see Notes 6 and 8). Total capital is calculated as the sum of equity, as presented in the consolidated balance sheet, and net debt.
37.3 - Financial risk management In the course of its operations, the Company is exposed to risk events that may affect the achievement of its strategic objectives. Risk management is primarily aimed at anticipating and minimizing the adverse effects of such events on the Company’s business activities and economic and financial performance. For the management of financial risks, the Company has established operational and financial policies and strategies, approved by internal committees and Management, designed to ensure liquidity, security, and profitability of its assets, as well as to maintain the levels of indebtedness and debt profile defined for its economic and financial cash flows. The sensitivity analyses presented below were prepared with the objective of measuring the impact of changes in market variables on each of the Company’s financial instruments. Accordingly, they represent projections based on assessments of macroeconomic scenarios and do not imply that the transactions will achieve the amounts presented over the analysis period considered. The main financial risks identified in the risk management process are as follows: 37.3.1 - Liquidity risk The table below analyzes, on a nominal basis, the Company’s non‑derivative financial liabilities by maturity ranges, corresponding to the remaining period from the balance sheet date through the final contractual maturity date. Contractual maturity is based on the latest date on which the Company is required to settle the obligations and include the related contractual interest amounts, where applicable.
37.3.2 - Derivative Financial Instruments 37.3.2.1 - Derivative financial instruments for hedging debt and firm commitments
37.4 - Financial Risk Management 37.4.1 - Interest Rate Risk a)Domestic Indexers Interest Rate Increase Risk
Financing contracts hedged by derivatives for which the Company assumes a liability position linked to the variable interest rate curve in Brazilian Reais (CDI) are included in the interest rate risk composition. Accounting Policy Recognition and measurement: Financial assets and financial liabilities are initially recognized at fair value and subsequently measured at amortized cost or at fair value, in accordance with IFRS 9 – Financial Instruments. Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as applicable, after initial recognition. Financial assets The Company’s financial assets are initially recognized at fair value and subsequently measured, as a whole, either at amortized cost or at fair value, depending on their classification. a) A financial asset is measured at amortized cost if it meets both of the following conditions: •it is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and •its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding. b) A financial asset is measured at fair value through other comprehensive income (FVOCI) if it meets both of the following conditions: •it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and •its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding. Upon initial recognition of an investment in an equity instrument that is not held for trading, the Company may make an irrevocable election to present subsequent changes in the fair value of the investment in other comprehensive income (OCI). The Company elects to recognize changes in the fair value of its Olsen|| charged to OCI when it does not have control, joint control, or significant influence over the investee. c) Financial assets that are not classified as measured at amortized cost or FVOCI, as described above, are classified as measured at fair value through profit or loss (FVTPL). On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the criteria for measurement at amortized cost or FVOCI as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Business model assessment The Company assesses the objective of the business model in which a financial asset is held, as this best reflects the manner in which the business is managed and the information provided to Management. Assessment of contractual cash flows For the purpose of assessing whether contractual cash flows constitute solely payments of principal and interest, principal is defined as the fair value of the financial asset at initial recognition. Interest is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period, as well as for other basic lending risks and costs. The Company considers the contractual terms of the instrument when assessing whether contractual cash flows are composed solely of payments of principal and interest. This includes an assessment of whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows in such a way that the condition would no longer be met. Financial Liabilities Financial liabilities, which include loans and borrowings, trade payables, and other accounts payable, are initially measured at fair value and subsequently measured at amortized cost using the effective interest method, when not designated as hedging instruments. Interest expenses, as well as foreign exchange gains and losses, are recognized in profit or loss. The effective interest method is used to calculate the amortized cost of a financial liability and to allocate the related interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash flows (including fees and premiums paid or received that form an integral part of the effective interest rate, transaction costs, and other premiums or discounts) over the expected life of the financial liability, or, when appropriate, over a shorter period, to the net carrying amount on initial recognition. Derivative financial instruments The Company uses derivative financial instruments to reduce its exposure to interest rate and foreign exchange risks, including interest rate swap contracts and non‑deliverable forwards (NDFs). Derivatives are initially recognized at fair value on the trade date and are subsequently measured at fair value through changes in fair value. Changes in the fair values of derivatives designated as fair value hedging instruments are recognized in finance results, while derivatives related to cash flow hedges are recognized in other comprehensive income (OCI). Hedge accounting The Company, considering the benefits of reducing earnings volatility and enhancing transparency regarding the effects of hedging activities, adopts hedge accounting. In accordance with IFRS 9 – Financial Instruments, there are three types of hedging relationships: •Fair value hedge: a hedge of exposure to changes in the fair value of a recognized asset or liability or of an unrecognized firm commitment; •Cash flow hedge: a hedge of exposure to variability in cash flows that is attributable to a specific risk associated with all or a component of a recognized asset or liability, or a highly probable forecast transaction, and that could affect profit or loss; and •Net investment hedge in a foreign operation: a hedge of a net investment in a foreign operation. The Company’s debt instruments designated as hedged items are classified as fair value hedges, for which changes in the fair values of both the hedging instruments and the hedged items are recognized in profit or loss. Unrecognized firm commitments designated as hedged items are classified as cash flow hedges, for which changes in the fair values of the hedging instruments are recognized in other comprehensive income (OCI). Critical estimates and judgments For hedged items traded in active markets, fair value measurement is based on observable market prices, using specialized valuation tools, such as Bloomberg. In all other cases, hedging instruments and hedged items are measured using valuation techniques in accordance with IFRS 13 – Fair Value Measurement, which generally apply assumptions based on prevailing market conditions.
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